Why is the interest rate referred to as the price of money?

1. Why is the interest rate referred to as the price of money?


2. When government change interest rates through monetary policy in times of boom and high inflation ?


3. Which direction do they want interest rates to go?|||1. If you wanted an extra 100k, you'd have to 'get' it from someone else. Hence you're 'renting' their 100k from them, for your use. Of course you have to pay them back, plus a fee (interest) for them letting you use it.





2. The reason bread is a $1, is because there's a certain amount of money TODAY, with a certain amount of PEOPLE today. If interest rates go DOWN, and people think "gee I don't have $500 in the bank, I borrowed money, now I have $2000 to spend today, - and make 'me' of the future pay it back"... The more things are bought today by 'stealing' away from the future. Lower interest rates means more spending today, which can lead to inflation. This all works backwards if interest rates go up.





"Savers" want interest rates to go up. "Spenders" want interest rates to go down.|||Too many questions to answer all at once.


I'll respond to the first one.


The price of BORROWING money is the interest rate you will pay on a fixed amount.|||1. When you borrow money the institution that you borrowed it from has to make a profit. That profit is called interest.





2. Governments do not change interest rates. Banks change interest rates. Whatever teacher, instructor or professor asked this question ask them to tell you who owns the Federal Reserve? If they tell you the government, tell them I said they shouldn't be teaching.





3. Interest rates are used as a political tool. For example, if the banking institutions are friendly towards a country to further their own agenda, they give them a low or favorable interest rate on their loans.|||If you are borrowing money, the interest rate is a cost to you! Thus called the price of money.





What is the government is trying to do?





The Federal Reserve in a time when it thinks inflation is about to exceed 2.50 to 3.00% raises the rate that it controls to prevent or control inflation above this level.





For a time rates across the yield curve all increase. Then you reach a point where the yield curve is flat or inverted.





This is when the Fed may have to pause any increases in short term rates so as not to send the economy into recession.





This where we are now!





The Fed does not control long-term rates( 7 years or longer), the market does! So in effect the Fed by raising short-term rates will eventually stop long-term rates from rising and eventually long-term rates will decline.





If the market is confident that the Fed will do what is necessary to stop or control inflation then Long-term rates will Not increase very much. The market is confident now! Remember the market are the people who own or continue to buy longer-term bonds. Their money is at risk. So their opinion is the most important.





We are in a Flat Yield curve Now partly because the market believes inflation is contained and the Fed will continue to do what is necessary. If the market loses this confidence in the Fed then longer-Term bond yields will explode higher. This will NOT be the case because the Fed learned the hard way in the late 1960's %26amp; 1970's that runaway inflation is the most destructive for our economy, economic system and our way of life!





The mistakes of the mid 1960's %26amp; 1970's must Not be repeated. Any politician that tries to repeat the policies of the mid 1960's %26amp; 1970's should be VOTED Down ASAP or NOT voted into office!!!!!!!! Go back and READ the History so Not as to repeat History! That goes for world affairs as well, go back and read World History of the 1930's.





The Fed will Fight inflation at all costs!!!!!!!!





By the way check out SAFE MONEY Places to put your money: http://www.jdsannuities.com|||interest rate (of using money) depends on many factors:


1-time.2- risk.3-economical situation (how match government need money)...................|||1. Interest is called the price of money because it is the price you pay to borrow it.





2. Interest rates are changed to keep the economy flowing. When interest is high, people save money because they are earning more interest. When interest is low they spend more because they can borrow more and pay less for it.


3. This question isn't exactly answerable... Interest rates are the controls to keep the economy moving, it is not the needle on a dial they want to keep in a specific area.





Hope this is helpful.